CREATIVE MEDICAL TECHNOLOGY HOLDINGS, INC. annual report, FY2011

Filing identity and reporting period

Important identity discrepancy: The request identifies Creative Medical Technology Holdings, Inc., but the supplied Form 10-K is for Jolley Marketing, Inc. (ticker JLLM), a Nevada corporation. Confirm that this is the intended filing before relying on this summary. The report covers the fiscal year ended December 31, 2011, with 2010 comparative results; it is not a standalone fourth-quarter report.

Business context

Jolley Marketing is a shell company with nominal assets. It ceased its lighting-product operations in June 2008 and has generated no revenue since then. It is searching for an operating business to acquire, but had identified no target or begun acquisition negotiations as of the filing. The company reported no employees and no active operations.

Financial results and position

At December 31, 2011, cash was $1,105 and prepaid expenses were $2,000, for total assets of $3,105. Current liabilities were $75,269, comprising $7,871 in accounts payable and $67,398 in notes payable and accrued interest to related parties. Working capital and stockholders’ equity were both negative $72,164. No operating margin is meaningful because the company had no revenue.

Financing activities provided $14,650 in 2011, compared with $13,500 in 2010; cash increased by $691 during 2011. The company reported no cash interest or income tax payments. Its shares had no active market or trading volume during 2011; the reported 2011 quarterly bid prices were blank.

Changes, outlook, and risks

• Net loss increased by $6,799 year over year, while professional fees rose to $18,036 from $14,068 and general and administrative expense rose to $1,794 from $222.
• Management estimated next-12-month expenses of approximately $20,000 and said available working capital was insufficient for 2012. It planned to seek loans or sell common stock and anticipated possible advances from the president or shareholders, but had no agreements for such funding.
• The auditor’s financial-statement opinion was unqualified, but included a going-concern emphasis: recurring losses, no operating revenue, and negative operating cash flow raised substantial doubt about the company’s ability to continue. The statements include no adjustments for the outcome of that uncertainty.
• Management concluded disclosure controls and internal control over financial reporting were not effective at year-end. The filing cites lack of segregation of duties and accounting expertise, with the sole officer handling financial reporting and no audit committee or audit committee financial expert.
• Related-party borrowing is material: the filing reports $53,150 in loans from an officer/shareholder-owned entity during 2009–2011, due on demand at 8% interest, plus a $6,000 minority-shareholder loan due in 24 months at 8%. A further $3,500 related-party loan was made in February 2012. Management also used the president’s office space at no cost.
• A future acquisition could substantially dilute existing shareholders and shift control; the filing anticipates that pre-transaction shareholders could retain less than 5% after a reverse acquisition. Management disclosed potential conflicts if the president negotiates both the company transaction and a sale of his own shares, and had no specific conflict-resolution policy.
• The stock is a penny stock, and shell-company status restricts resale of certain shares under Rule 144. The company reported no legal proceedings, off-balance-sheet arrangements, or dividends.

Important facts for investors to verify

• Confirm the filing issuer: the supplied report is for Jolley Marketing, Inc., not Creative Medical Technology Holdings, Inc.
• Review the company’s ability to fund operations, the terms and balances of related-party debt, and whether additional financing was obtained after the reporting date.
• Verify whether a business combination or other material event occurred after filing; no target or acquisition commitment was reported in this 10-K.
• Reconcile the share-count discrepancy: the balance sheet reports 18,113,750 shares outstanding, while the loss-per-share note gives a weighted-average denominator of 18,133,750.
• Assess the impact of the disclosed control weaknesses, illiquid trading market, shell-company resale restrictions, and potential dilution from a future transaction.